Overbought

Short-Term:

Last week went exactly as planned.  We saw a small pullback that was once again quickly bought. This week we may see more of the same with another small pullback and another push higher. However, we are now up 7 weeks in a row and very overbought. This has only happened 8 times since 1996 (see below). 6 of the 8 cases saw a decent pullback within 1-3 weeks. Thus we likely will see a pullback over the next week or so that will test the 255 low of last week.

 

Statistics for 7 up week on the S&P: 50% chance to close green the following week with a profit factor around .6 so not great.

Medium-Term:

As we mentioned last week, we are now in the final climax phase of the long 8 year bull market. This will be the exhaustion phase of the Bull move. While this phase could continue for some time, chances are the upside is limited to around the 260-270 level in the medium term, but with a such a climax rationally goes out the window. Also of note is that there is a long standing trend line dating back to the 2009 low above at this same 260-270 level. A break of this line will further increase the change a large, abrupt pullback. While the chances of such a sudden “crash” remain low by definition, they are slowly increasing.

SPY has now risen for 11 months is a row which breaks the previous record, which is another sign of the current climatic market phase. We are now seeing volume indicators spike higher while at the same time momentum is slowly weakening. This type of divergence should lead to a sharp 1-3 month pullback which can start at any time over the next few months. The 242 level would be the first line in the sand. However, Bulls will likely buy the first pullback so Bulls continue to be in full control.

Even more evidence of the current climax can be seen with SPY being above its moving average (the blue line) for 48 periods. This is extremely unusual and we normally leads to a fall below this average in the near future. This is now the longest period above the average since 2003 (about 50 periods), so we are very rare territory.

Long-Term:

Long-Term Market Outlook (Updated 4/16/17).

Here is the Full Plan.

The Calendar:

This week: will be all about the FOMC and their long term plan.

Next week: will pretty quit on the report front.

 

Trend Following Models:

Our long-term models are Bullish.
Our medium-term models are Bullish but weakening.
Our short-term models are Bullish.

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